Cloud Services: Who Owns The Customer?

Hardware resales provided clear lines on who owned the customer, the vendor or the VAR. These days the question is more complicated, especially as Microsoft prepares to launch Office 365 and move vendors offer the option of direct cloud sales.

As
the proliferation of cloud services continues and more channel partners are
getting into reselling the services of others, there’s a big question mark
forming, and there’s no real answer yet: Who owns the customer?

In
a traditional hardware or software resale deal, resellers make their money off
of resale margins, hopefully followed by service and support for continued
revenue. If a customer chooses to break off the relationship and go to another
reseller, they own the hardware/software, and they can sign a contract with a
different partner. In a hosted environment, partners that own the equipment
that lies in a data center can lose a customer, but it’s up to the customer’s
new MSP to have the equipment and migration tools necessary to take over the
business. Cloud services makes the concept of customer ownership a lot more
fuzzy, said Gordon Squires, president of Computerized Business Solutions (www.cbsunified.com),
an MSP that offers hosted services through its data center.

During
a Q&A period at the Synnex Varnex conference in April,
Squires posed a question to a panel of vendor representatives that included
Microsoft, Lenovo, HP, Symantec, EMC and value-added distributor Synnex: With
cloud services, who owns the customer? Only two members of the panel addressed
the topic, and only one actually answered the question. Greg Lissy, director of
SMB channel strategy at Microsoft, simply called channel partner selling
Microsoft’s cloud services "trusted advisors," but didn’t actually address the
concern, whereas Terry Richardson, director of OEM sales at HP, said the
customer belonged to the channel partner. Of course, HP has chosen to stay out
of the cloud services game, so far, instead focusing on being the provider of
the hardware on which partners can build infrastructure to host their own cloud
services. The rest of the panel was silent, which Squires noted was concerning.

Tiffani
Bova, vice president of sales and channel strategies worldwide for technology
and service provider research at Gartner, who followed the panel with a
discussion on the cloud market, kicked off her presentation by addressing the
question of who owns the customer.

Although
understandable that the customer has final say in what VAR, MSP and vendor it
deals with in the end, Squires later told Channel Insider that it was more
complicated than that.

"Anyone
who won’t give you a clear answer or says the customer owns the customer wants
to make you go away and not talk about it, because it’s not that simple,"
Squires said.

Not
all vendor (or distributor, such as Synnex’s latest CloudSolv line) cloud
services are alarming, as many of them are available to channel partners as
private label services and the billing is done by the partner. From that
perspective, the customer likely has no idea who the actual provider of the
cloud service is. In some cases, such as Microsoft’s Office 365, the vendor
insists on putting its own name on what the customer sees and won’t give up
billing to the partner. Microsoft calls the reseller of its cloud services the
"reseller of record," but according to Squires, who sat in a discussion with
Microsoft about Office 365, the reseller of record can be changed by the
customer, enabling the vendor to either go direct or make it incredibly simple
switch to another reseller.

"In
the hosted world, all the Microsoft stuff, I register it, I bring the customer
to them, Microsoft refuses to bill me and bills my customer directly," Squires
said. As long as the reseller’s name remains on the account, then they’ll
continue to get the ongoing revenue from the service, but Squires said all it
takes is for the customer to call Microsoft and change the name of the
"reseller of record" to find all the up-front sales work and the closing of the
deal suddenly have no revenue attached to it.

It’s
a matter of creating conflicts between vendors and channel partners, or between
channel partners themselves. Either way, it creates the possibility for
customer poaching, leaving the costs for the original sale to one and letting
someone else reap the benefits.

"They’re
enabling and facilitating that change. In no way would I hold a customer
hostage ... but it’s the difference between being amenable and helpful to the
customer and being stupid and doing the work for the next guy to get the
money," Squires said.

Not
every VAR and MSP is as concerned about customer poaching, though. According to
Sean Kline, president and CEO of Turbotek Computer,
an MSP that offers its own cloud services as well as those by vendors (although
its primary business is in hosting its own cloud services for customers), he’s
heard concerns about cloud service customer ownership from other VARs and MSPs,
but he doesn’t share them. He agreed with Bova’s "nobody owns the customer"
mentality.

"If
someone wants to go off and kind of nickel and dime me on particular aspects of
agreements or price, I frankly don’t want them as customers and will ask them
to go elsewhere under those circumstances. Personally, I don’t have any fear of
that," Kline said.

The
term "trusted advisor" gets used a lot when discussing channel partners of all
types, and that’s the differentiator – and the reason why partners shouldn’t be
concerned about customers being poached over a vendor’s cloud service.

"Our
goal is to have relationships with a customer such that we are their trusted
advisor so that we are their expertise as it relates to IT, and so it doesn’t
really matter what the logistics are of a particular agreement in that
context," Kline said.

He
said he didn’t want to minimize the concerns that others in the channel have
around customer ownership because customers don’t want confusion and they don’t
want complexity.

Especially
in the SMB market, customers want one bill and one throat to choke, said Sumeet
Sabharwal, senior vice president of strategic alliances and operations at
NaviSite (www.navisite.com), which builds its own cloud infrastructure and
partners with others in the channel to take those services to market.

For
channel partners that are concerned about being poached by direct sales or
through actions of their own customers, Sabharwal suggested working strictly
with vendors that allow for private labelling of cloud services and who will
allow them to bill the customer on their own.

"What
Microsoft is realizing is all those VARs have options. They don’t have to sell
Office 365," Sabharwal said. There are plenty of private label cloud services
available, much of them from smaller vendors that are easier to work with than
the big vendors, he added.

Squires,
whose business is mostly focused on providing his own hosted services, noted
that the best vendors to work with are those that enable the channel rather
than compete with it, but he did say there are several vendors that compete
directly with their own channels. When the vendor has contact with the customer
through billing or its own brand on the service, then there’s always the
possibility of having the business pulled away by the vendor directly or
indirectly.

"So
who owns the customer? It’s an easy question. It’s an easy answer that no one
wants to touch," Squires said.